Gerdau(GGB) - 2025 Q1 - Quarterly Report

Condensed Consolidated Interim Financial Statements This section covers the company's financial position, performance, comprehensive income, equity changes, and cash flows for the interim period Consolidated Balance Sheets As of March 31, 2025, Gerdau's total assets were BRL 85.58 billion, a slight decrease from BRL 86.81 billion at the end of 2024, while total liabilities increased to BRL 29.36 billion from BRL 28.64 billion, and total equity decreased from BRL 58.17 billion to BRL 56.22 billion Consolidated Balance Sheet Summary (in thousands of BRL) | Account | March 31, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Total Current Assets | 32,193,864 | 32,669,423 | (1.46%) | | Total Non-Current Assets | 53,382,306 | 54,145,070 | (1.41%) | | Total Assets | 85,576,170 | 86,814,493 | (1.43%) | | Total Current Liabilities | 12,193,027 | 10,851,391 | 12.36% | | Total Non-Current Liabilities | 17,163,693 | 17,789,316 | (3.52%) | | Total Liabilities | 29,356,720 | 28,640,707 | 2.50% | | Total Equity | 56,219,450 | 58,173,786 | (3.36%) | | Total Liabilities and Equity | 85,576,170 | 86,814,493 | (1.43%) | - Cash and cash equivalents decreased from BRL 7.77 billion to BRL 6.48 billion during the quarter[2] - Short-term debt saw a significant increase from BRL 697.0 million to BRL 2.10 billion[3] Consolidated Statements of Income For the first quarter of 2025, Gerdau reported net sales of BRL 17.38 billion, an increase from BRL 16.21 billion in the same period of 2024, but net income attributable to parent owners fell sharply to BRL 749.5 million from BRL 2.04 billion year-over-year, leading to a drop in basic and diluted earnings per share (EPS) to BRL 0.37 from BRL 0.97 Q1 2025 vs. Q1 2024 Income Statement (in thousands of BRL, except EPS) | Metric | Q1 2025 (ended Mar 31, 2025) | Q1 2024 (ended Mar 31, 2024) | Change (YoY) | | :--- | :--- | :--- | :--- | | Net Sales | 17,375,336 | 16,210,263 | +7.19% | | Gross Profit | 1,946,553 | 2,419,719 | -19.55% | | Income Before Taxes | 1,078,018 | 2,276,565 | -52.65% | | Net Income | 757,804 | 2,052,872 | -63.09% | | Net Income (Owners of Parent) | 749,493 | 2,043,782 | -63.33% | | Basic/Diluted EPS (R$) | 0.37 | 0.97 | -61.86% | Consolidated Statements of Comprehensive Income The company experienced a total comprehensive loss of BRL 1.48 billion for the first quarter of 2025, a stark contrast to the BRL 3.03 billion comprehensive income in Q1 2024, primarily driven by a significant negative cumulative translation adjustment of BRL 1.99 billion - A negative cumulative translation adjustment of BRL 1.99 billion was the main driver of the comprehensive loss in Q1 2025, compared to a positive adjustment of BRL 1.33 billion in Q1 2024[5] Comprehensive Income Summary (in thousands of BRL) | Item | Q1 2025 (ended Mar 31, 2025) | Q1 2024 (ended Mar 31, 2024) | | :--- | :--- | :--- | | Net income for the period | 757,804 | 2,052,872 | | Other comprehensive income (loss) | (2,233,151) | 977,051 | | Total comprehensive income (loss) | (1,475,347) | 3,029,923 | Consolidated Statements of Changes in Equity Total equity decreased from BRL 58.17 billion at the end of 2024 to BRL 56.22 billion as of March 31, 2025, mainly due to a comprehensive loss of BRL 1.48 billion, share buyback effects (BRL 280.9 million), and dividend payments, partially offset by net income of BRL 757.8 million - Equity attributable to parent company holders decreased from BRL 57.95 billion to BRL 56.02 billion during Q1 2025[6] - Key activities impacting equity in Q1 2025 included net income of BRL 749.5 million, other comprehensive loss of BRL 2.22 billion, a share buyback program costing BRL 280.9 million, and cancellation of treasury stocks[6] Consolidated Statements of Cash Flows For the first quarter of 2025, net cash provided by operating activities was BRL 900.9 million, while investing activities used BRL 2.38 billion and financing activities provided BRL 594.4 million, resulting in an overall decrease in cash and cash equivalents of BRL 1.29 billion Cash Flow Summary (in thousands of BRL) | Cash Flow Activity | Q1 2025 (ended Mar 31, 2025) | Q1 2024 (ended Mar 31, 2024) | | :--- | :--- | :--- | | Net Cash from Operating Activities | 900,860 | 831,290 | | Net Cash from Investing Activities | (2,380,308) | 362,635 | | Net Cash from Financing Activities | 594,411 | (516,069) | | Increase/(Decrease) in Cash | (1,288,269) | 737,478 | | Cash at End of Period | 6,479,544 | 3,743,123 | - Significant cash outflows in investing activities included BRL 1.84 billion for purchases of property, plant, and equipment and BRL 433.2 million for the acquisition of company control[7] Notes to the Condensed Consolidated Interim Financial Statements This section provides detailed disclosures on accounting policies, acquisitions, debt, risk management, legal claims, equity, segment performance, and subsequent events Note 2: Summary of Significant Accounting Practices The company has changed its segment reporting structure starting in Q1 2025, integrating the former Special Steel segment into the Brazil and North America segments to align reporting with regional markets and improve results presentation, with comparative information restated - The company realigned its business segments, merging the former Special Steel operations into the Brazil and North America segments to better reflect the regional nature of the steel industry[14][15] - The new segments are: Brazil Segment (long, flat, special steel, and iron ore in Brazil), North America Segment (long and specialty steel in Canada, US, and a JV in Mexico), and South America Segment (operations in Argentina, Peru, and Uruguay)[17] Note 3: Acquisitions and Investments In Q1 2025, Gerdau completed two key acquisitions: the remaining shares of Gerdau Summit Aços Fundidos e Forjados S.A. for US$32.6 million, making it a wholly-owned subsidiary, and the Garganta da Jararaca Small Hydroelectric Power Plant (PCH) for BRL 244.5 million to supply its Brazilian steel units with renewable energy - On February 10, 2025, Gerdau acquired the remaining 41.27% of Gerdau Summit for approximately US$32.6 million, gaining 100% control, with Gerdau Summit producing cast and forged steel[31] - On March 21, 2025, Gerdau acquired the Garganta da Jararaca Small Hydroelectric Power Plant (PCH) for BRL 244.5 million to increase self-production of clean energy and enhance cost competitiveness[33] Note 12: Loans and Financing Total loans and financing increased to BRL 10.56 billion as of March 31, 2025, from BRL 9.81 billion at year-end 2024, with the majority of the debt (BRL 8.44 billion) denominated in U.S. Dollars, and the company maintains an unused US$875 million global credit line Debt Composition by Currency (in thousands of BRL) | Currency | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Brazilian Real (R$) | 1,925,932 | 456,448 | | U.S. Dollar (US$) | 8,439,982 | 9,169,319 | | Other currencies | 191,482 | 182,254 | | Total | 10,557,396 | 9,808,021 | - The nominal weighted average cost of debt was 5.55% p.a. for USD-denominated debt and 102.34% of CDI p.a. for BRL-denominated debt[57] - The company has an undrawn US$875 million global credit line maturing in September 2027[62] Note 14: Financial Instruments and Risk Management Gerdau manages market risks through established policies and derivative instruments for hedging, targeting a Net Debt/EBITDA ratio of 1.5x or less and a gross debt limit of BRL 12 billion, with sensitivity analysis showing a BRL 26.8 million net loss from a 5% BRL appreciation against the Dollar on unhedged positions - The company's capital management targets include a Net Debt/EBITDA ratio of ≤ 1.5x, a gross debt limit of BRL 12 billion, and an average debt maturity of over 6 years[77] Sensitivity Analysis on Statement of Income (Impact of Adverse Change) | Risk Factor | Assumption | Impact (in thousands of BRL) | | :--- | :--- | :--- | | Foreign Currency (Debt) | 5% BRL Depreciation | (10,821) | | Foreign Currency (Trade) | 5% BRL Appreciation | (37,587) | | Interest Rate | 10 bps Increase | (37,312) | | Product Price | 1% Decrease | (173,753) | | Raw Material Price | 1% Increase | (111,417) | - The company uses Ten Years Bonds to hedge part of its net investments in foreign subsidiaries, with exchange rate effects recognized in Other Comprehensive Income[99] Note 15: Legal Claims and Contingencies As of March 31, 2025, Gerdau has provisions for probable losses from legal claims totaling BRL 2.36 billion, primarily for tax matters, and faces significant contingent liabilities, assessed as possible but not probable losses, including major tax cases related to goodwill amortization totaling over BRL 8.8 billion Provisions for Probable Losses (in thousands of BRL) | Claim Type | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Tax provisions | 1,963,944 | 1,925,237 | | Labor provisions | 359,138 | 369,041 | | Civil provisions | 35,581 | 34,571 | | Total | 2,358,663 | 2,328,849 | - The company has significant contingent liabilities (possible loss) related to the disallowance of goodwill amortization from a 2004/2005 restructuring, with an updated total amount of BRL 8.27 billion[119] - Other major tax contingencies (possible loss) include disputes over withholding tax on export financing (BRL 1.74 billion), goodwill amortization from a 2010 restructuring (BRL 593 million), and taxes on profits generated abroad (BRL 1.51 billion)[116][117][118] Note 17: Equity As of March 31, 2025, the company's capital was BRL 24.27 billion, divided into approximately 719 million common and 1.33 billion preferred shares, with a new 12-month share buyback program approved in January 2025 for up to 63 million preferred shares and 1.5 million common shares - On January 20, 2025, the Board approved a new share buyback program for up to 63 million preferred shares (GGBR4) and 1.5 million common shares (GGBR3), with a 12-month term[143] - The Board approved the cancellation of 1,093,011 common shares and 25,000,000 preferred shares on January 20, 2025, and a further cancellation of 517,600 common and 24,000,000 preferred shares on April 28, 2025[142][144] Share Ownership Structure (March 31, 2025) | Shareholder Group | % of Total Shares | | :--- | :--- | | Metalúrgica Gerdau S.A. (Controlling) | 34.1% | | Foreign institutional investors | 50.9% | | Brazilian institutional investors | 6.5% | | Other shareholders | 7.3% | | Treasury stock | 1.2% | Note 22: Segment Reporting For Q1 2025, the North America segment was the largest contributor to net sales at BRL 8.77 billion, followed by the Brazil segment at BRL 7.49 billion, with North America's gross profit decreasing significantly to BRL 995 million from BRL 1.54 billion YoY, while Brazil's gross profit increased to BRL 795 million from BRL 642 million Segment Performance Q1 2025 vs Q1 2024 (in thousands of BRL) | Segment | Net Sales Q1 2025 | Net Sales Q1 2024 | Gross Profit Q1 2025 | Gross Profit Q1 2024 | Net Income (Loss) Q1 2025 | Net Income (Loss) Q1 2024 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Brazil | 7,494,218 | 7,353,937 | 795,135 | 642,077 | 240,892 | 143,850 | | North America | 8,768,193 | 7,914,296 | 994,956 | 1,536,057 | 621,079 | 1,081,785 | | South America | 1,365,508 | 1,190,598 | 159,722 | 253,598 | 12,296 | (63,243) | - The North America segment, despite higher sales, saw a significant drop in profitability, with gross profit falling by 35% and net income by 43% year-over-year[160] - The Brazil segment showed improved profitability, with gross profit increasing by 24% and net income by 67% year-over-year[160] Note 24: Subsequent Events After the reporting period, Gerdau continued its strategic activities, acquiring Kloeckner Metals Brasil Ltda. for BRL 42.9 million on April 11, 2025, proposing a dividend payment of BRL 243.5 million on April 25, and acquiring the Paranatinga II Small Hydroelectric Power Plant for BRL 197.2 million on April 28 - On April 11, 2025, Gerdau acquired 100% of Kloeckner Metals Brasil Ltda. for BRL 42.9 million[170] - A dividend payment of BRL 243.5 million (BRL 0.12 per share) was proposed, with a record date of May 8, 2025, and payment on May 19, 2025[171] - On April 28, 2025, the company acquired the Paranatinga II Small Hydroelectric Power Plant for BRL 197.2 million to increase its self-production of renewable energy[172]